Tuesday, March 24, 2009

Banksters of the World Unite: Set Our Bonuses Free

I woke up truly intending to comment on markets and hardly at all on the Treasury banking scheme, but there is simply enough good new stuff on it that for all intents and purposes proves that the "rip-off" characterization used in my quick take on the plan mid-day yesterday is correct, that one more post appears appropriate.

One of the deans of financial/economic blogging is "Calculated Risk" (www.calculatedriskblog.com). "CR" is as fair-minded as any financial blogger I have seen. Here is his post from late last night. ("Tanta" is his now-deceased former partner in the blog, and a mortgage specialist, as you will guess when you see the part relating to her.) It would appear that CR has turned against the Treasury proposal. CR's post from 10:19 PM March 23:

AustanGoolsbee, of the White House Council of Economic Advisers responds to Paul Krugman on Hardball. (ht (= hat tip) David)

A couple of comments: Goolsbee claims "if the private guy makes money, the government makes money. If the private guy loses money, the government loses money." Goolsbee is correct on an individual pool, but investors can buy multiple pools and Nemo has an excellent example of how the investors can make money, and the government lose money.

[T]he Geithner scheme would offer a one-way bet: if asset values go up, the investors profit, but if they go down, the investors can walk away from their debt. So this isn’t really about letting markets work. It’s just an indirect, disguised way to subsidize purchases of bad assets.

It's not a complete one-way bet on any individual pool because the investors do put a small amount of money down - and that small amount is at risk. But Krugman was referring to the non-recourse debt and he is correct.

DoctoRx again. CR's post references Nemo's "Self-Evident" blog, which, in two parts, dissects the math of the giveaway. It's readable, for those with real interest in the details.

Note that the giveaway is both to the financial institutions and the buyers of their garbage. The losers are everyone else.

The Wall Street Journal also has a telling article today, "Obama Dials Down Wall Street Criticism". Here are some quotes. I especially like the mention of Rahm Emanuel's recent career choice (NOT community organizer!).

WASHINGTON -- The Obama administration, after months of criticizing Wall Street, has been scrambling to woo top bankers and financiers to back its latest bailout plan.

The administration's initial approach contrasted with those of the last two White Houses. Robert Rubin left Goldman Sachs Group to become one of Bill Clinton's top economic advisers, and convinced the new president that what was good for Wall Street was good for America. Under President George W. Bush, the administration "looked up to and admired Wall Street," says one banker. "The Obama folks don't even like us."

(DoctoRx here.: But that's all over now. Hundreds of billions in Federal money is much better than "like". It's true love.)

Goldman Sachs President Gary Cohn saw the contrast in person when he visited Chief of Staff Rahm Emanuel in early March. Goldman executives wanted to be part of the dialogue reshaping their industry, according to one Goldman executive. Instead, Mr. Emanuel lectured about how Wall Street "mispriced risk" and then expected Uncle Sam to pay the price for it. "My shareholders are called taxpayers," said Mr. Emanuel, who had previously worked for about two years as an investment banker.

The article concludes:

The banks' message: If you want our help to get credit flowing again to consumers and businesses, stop the rush to penalize our bonuses.

(DoctoRx here.: That's why they call them banksters!)

The Administration has put lipstick on the TARP pig. This pig is worse in many ways more porcine than the initial Paulson-Senate "TARP I" bailout pig, in which at least in theory the Government had as much chance of making money as losing it but where Wall Street had only a minor middleman role, and from which Congress and Paulson quickly ran away. But to be a bankster means never having to say you're sorry and never ever stop working to take other people's money.

Once again the Government is siding with the giant financial companies rather than ordinary citizens. In the people vs. the powerful battle, the powerful win again. We are getting Hoover when we need FDR.